Even though many taxpayers file their tax returns on or about April 15 every year, it’s not mandatory to wait until the last minute. Indeed, filing an early tax return can make sense for a variety of reasons. The Internal Revenue Service (IRS) normally begins accepting tax returns in January.
Last year the date was Jan. 29. This year’s date has not yet been announced, but experts believe it might be delayed due to the many changes in tax law following passage of the Tax Cuts and Jobs Act (TCJA). Even if you don’t file early, there are reasons to begin preparation before the end of the current year.
New Standard Deduction
One of the most important decisions you will have to make this year is whether to take the new, larger standard deduction or itemize. Single filers and married taxpayers who file separately can now claim a $12,000 standard deduction. For married couples filing jointly the standard deduction is $24,000. Heads of household get a deduction of $18,000. The sooner you begin working on your tax return, the sooner you will be able to decide.
New SALT Tax Deduction Limit
The TCJA also limits your total state and local tax deduction (SALT) to $10,000. This limit may provide further incentive to take the standard deduction if your SALT deduction is typically more than the new limit and you don't have a whole lot of other deductions. Getting a head start on your taxes will help you avoid an unforced error when it comes to this important part of your tax return.
Filing an Early Tax Return Gets It Done
Avoid procrastination, give yourself peace of mind and check this important item off your new year’s to-do list. Once the IRS says it will begin accepting returns, why not turn yours in and get this unpleasant task over with?
A Faster Refund
Last year 73% of taxpayers received an average refund of $2,825. If you have money coming to you, there’s no reason to let the government keep it longer than necessary. Filing sooner means a faster refund, because early on the IRS won’t be as busy early in tax season as it will be in April.
A Larger Refund
Data from the IRS indicate that those who file no later than mid-February get larger refunds. This may be, in part, because the sooner you start the less rushed you are and the more likely you will be to take advantage of all available deductions instead of taking the standard deduction.
If you are someone who mails in your tax return, filing early avoids congestion and a crowded post office. Better to file early – especially by mail – and avoid the hassle.
Filing early gives you time to fully understand changes to tax law or deal with changes in your life that alter your filing status. Mistakes from rushing at the last minute can trigger audits that can lead to penalties and interest. Given changes brought on by the TCJA, this point is more important than ever this year.
Money When You Need It
Some people count on their income tax refund to pay major bills. Filing early puts the money in your hands sooner and may help you avoid taking out an expensive short-term loan to cover those expenses, especially if you're still paying off your holiday bills.
Better Access to Your Tax Preparer
Your certified public accountant (CPA) or other tax preparer will not be as busy in January or February as in April. Early access means your CPA will have additional time to more carefully consider your situation and help you with your return.
If you take that head start before Dec. 31, you get time to estimate capital-gains distributions, harvest losses and maximize contributions to a company 401(k) and/or any IRA plans you have. You can make end-of-year deposits to health savings accounts and contributions to 529 savings plans, as well as last-minute charitable contributions. You can also take advantage of the opportunity to shift deductible items – such as property taxes, business expenses or even mortgage payments – to whichever year makes the most sense tax-wise.
Time to Save Up to Pay
If you owe the IRS, filing early gives you time to save up the money. Remember, you don’t have to pay until the filing deadline. Waiting only to find out that you owe more than you expected could put a real crimp in your budget. A report by the Government Accountability Office suggests that more than 30 million Americans may owe taxes this year due to underwithholding. One possible trigger: the new tax law's elimination of the personal exemption. If your research indicates you might have underpaid, you can make an estimated tax payment for 2018 by Jan. 15, 2019 and avoid penalties.
Access to Information You Need
Buying a home or going back to college requires information from recent tax returns. Preparing your taxes early will provide you with the most up-to-date information available.
Prevent Identity Theft
The sooner you file, the less time there is for an identity thief to file for you – and take your refund. This could lead to all sorts of mayhem, especially if the thief claims false deductions, fails to report income or otherwise taints a return in your name. Fixing a mess like this can take months.
An inaccurate return will likely become an amended return. Amended returns invite audits. Here are some things to watch out for as you pursue accuracy.
- Mistakes in Official Documents – Check all incoming statements, including W2s, 1099s, interest statements and anything used to justify a deduction. Companies, banks and financial institutions make mistakes. Catch them before you file.
- Forms that Arrive Late – Early filers can neglect a 1099 or K-1 that arrives late. Make sure you have all the documentation you need before you click on “send” or drop your return in the mailbox.
- Tax-Law Updates Not Reflected in Forms – Legislation passed before April 15 may not be incorporated into paper tax forms or tax software that has not been updated. Watch the news. Be on the lookout for changes that might have been missed. If necessary, you can file an amended tax return.
- Be Honest – If you do have to amend your return, don’t correct only the things that are to your advantage. Correct anything that is wrong.
- TCJA Changes – With 2018 being the first year affected by the changes wrought by the TCJA, it's important that you take the time to understand them fully. Even the 1040 Form has changed. In fact, if you previously used the 1040EZ or 1040A, those forms have been eliminated. You will not be able to use last year's tax filing as a template for 2018.
The Bottom Line
Most experts agree that it’s best to at least start your return as early as possible. The decision to file early may depend on the complexity of your return, if you are receiving a refund and the extent to which the new tax law affects you. Follow the advice of your financial or tax advisor to make sure your return is accurate and complete.